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Thursday, May 23, 2013

Are small investors influenced by the ‘IPL Syndrome’?

There is little doubt that the IPL matches have become one of the most successful entertainment shows over the past few years. It has captured the imagination of young and old, men and women, rich and poor, those who have played and understand the game of cricket and those who have never put bat to ball and couldn’t care less.

It provides three hours of action, music, thrills, dancing girls – in fact all the ingredients of a typical Indian movie, with the added attraction of audience participation. The paying public can cheer, jeer, shout, sing, dance, wear fancy costumes and generally have a good time regardless of what is happening out on the field.

Tickets for the matches are not cheap by any means. They can’t be – considering the astronomical sums of money paid to the players for just a couple of months of ‘work’. Yet, most matches have packed stadiums even though the matches are covered live on television. So, what is the great attraction for watching these matches in the searing heat of summer?

May be I’m just too old-fashioned and conservative to understand or appreciate the ‘tamasha’ that goes on in the name of cricket. The first live cricket match I had the privilege of attending was in Jan-Feb 1964 at the Eden Gardens, Calcutta. It was a 5-day test match between Mike Smith’s MCC and India. It ended in a boring draw, but remains memorable because of the century scored by Colin Cowdrey.

Scoring runs in test cricket is all about patience, discipline and technique. Only an experienced test batsman knows which balls to leave, which balls to play defensively, which balls to turn around the corner for a single or two, and which balls to hit for a boundary. Cowdrey’s innings – unexciting and sometimes boring - was a lesson for cricket enthusiasts about how to go about accumulating runs.

One can learn a lot about accumulating wealth through investments by watching and observing a technically sound test batsman (like Cowdrey or Gavaskar or Dravid). The knowledge of which stocks to avoid, which to buy and hold for the long-term, and which stocks to acquire for some quick gains comes from experience gained by spending long, boring hours at the ‘crease’.

In contrast, the IPL batsmen show little patience, less discipline and almost a complete absence of technique. The entire emphasis is on scoring runs as fast as possible by hitting many balls in the air (the ‘IPL Syndrome’) – an exciting but sure strategy for getting out quickly. Entertaining? Perhaps. But is it the best way to play cricket?

Most small investors enter the stock market with zero experience, little knowledge, but with great enthusiasm to make a lot of money quickly. So, they run after stock tips and cheap stocks - failing to distinguish between ‘dud’ stocks, stocks that are only good for short-term gain and the real wealth-builders.

The ‘cheap’ stocks are cheap for a reason. The blue-chip wealth-builder stocks are always ‘expensive’. It is up to investors to decide if they want to be influenced by the ‘IPL Syndrome’ and lose money quickly, or make the effort to learn and be patient and disciplined to acquire wealth over the long-term.